Investors are justifiably worried about facing a double whammy in the form of inflation and high bond yields in the near future. Stocks tend to do OK in response to a small rise in inflation. Anything beyond 3% or 4%, however, would spell trouble as companies cannot raise prices more than what consumers can afford, hurting their real revenue. We already hit that mark back in April.
If that wasn’t enough, bond yields are almost guaranteed to rise sharply as fixed-income investors need at least 3.5% to break even with inflation, compared to a 1.5% yield on the 10-year Treasury right now. When bond yields rise, it puts pressure on stocks as it gives investors the option to choose something that is still rewarding yet far less risky. This is especially bad for high-flying growth stocks.
Luckily, two fantastic value stocks could act as buffers to inflation. They are Barrick Gold (NYSE:GOLD) and Regeneron Pharmaceuticals (NASDAQ:REGN). Let’s look at what they have in store for investors.
1. Barrick Gold
Barrick Gold is the operator of five of the largest gold mines in the world, along with many other assets. The company’s growth is all structured around sustainability. It is among the top 5% of miners globally regarding environmental reporting, water management, social reporting, and attention to human rights. Barrick Gold expects to produce up to 5 million ounces of gold each year for the next decade, with production at new mines offsetting depleted ones.
Don’t be dismayed by its constant volume guidance. The price of gold has been rising sharply for some time — largely due to inflation woes. During Q1 2021, Barrick Gold increased its revenue by 8.64% year over year to $2.956 billion. Simultaneously, its free cash flow grew by 74.2% to $763 million.
Aside from producing gold, the company also mines about 93 million pounds of copper per year. Even though its mining volume declined in the quarter, surges in the price of copper have caused its segment revenue to surge 31% year over year.
Based on its success, the company decided to give back to its shareholders with the declaration of $0.09 per share in dividend for the first quarter, payable on June 15. That amounts to a solid yield of 1.746% per annum and is an increase of 28.6% from the same period last year.
Barrick Gold is also doing well in terms of capital management — despite operating in a sector that relies heavily on capital expenditures. It has more than $5.6 billion in cash on its balance sheet to offset roughly $5.1 billion in liabilities.
One of the best parts about the company is its valuation. For all the growth it generates, Barrick Gold stock is only trading for 17 times earnings (P/E). As inflation ticks up, expect gold prices to rise further and act as a catalyst to send the company’s shares to new levels.
2. Regeneron Pharmaceuticals
Pharmaceutical stocks typically outperform during high inflation periods, as their life-saving medicines are essential and therefore benefit from inelastic demand.
During Q1 2021, Regeneron Pharmaceuticals grew its revenue by 38% year over year to $2.53 billion. Meanwhile, its earnings per share (EPS) grew by 50% during the same period to $9.89. The growth was driven mainly by the strong performance of its blockbuster eye-injection, Eylea, which treats retinal diseases, and its allergy drug, Dupixent.
What’s more, the U.S. Food and Drug Administration (FDA) recently approved its biologic Libtayo for the treatment of advanced non-small-cell lung carcinoma and metastatic basal cell carcinoma. In a phase 3 study in March, the drug demonstrated superb efficacy against cervical cancer.
Those conditions have a combined total addressable market of 11 figures in annual revenue, so there’s a lot of potential ahead for Libtayo. Aside from that, Regeneron also sold $439 million worth of its REGEN-COV COVID-19 antibody cocktail. In clinical studies, patients who took REGEN-COV saw a 70% reduction in risk of hospitalization or death.
The pandemic is coming under control the U.S., but not so much in the rest of the world. So there is every reason to expect Regeneron can continue to find a market for REGEN-COV for a while longer. Additionally, there are still 2 million individuals in the U.S. with chronic illnesses could benefit from taking REGEN-COV as a preventive measure. That’s another potential field of expansion for Regeneron.
Overall, Regeneron’s growth is sustainable moving forward. It has seven indications up for FDA approval consideration this year alone, including fasinumab, to treat osteoporosis. Like Barrick Gold, Regeneron is also sharing its success with its shareholders, this time via a $1.5 billion share repurchase program. This is one hot biotech stock you don’t want to miss out on, especially trading at only 14 times earnings.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.